Does Tennessee charge sales tax on online-gaming purchases — downloaded games, codes for games you play on a remote server, and prepaid game, points, or subscription cards?

Plain-English summary

A retailer that sells to Tennessee customers both online and in its Tennessee stores asked the Department how Tennessee sales and use tax applies to a range of online-gaming and digital-content products. The Department sorted them into categories and drew one consistent line: downloading software, or buying/accessing "specified digital products," is taxable — but merely accessing software that lives on an out-of-state server, with nothing delivered into Tennessee, is not.

The starting rules:

• Tennessee taxes retail sales of tangible personal property, which by statute includes prewritten computer software, taxable no matter how the software is delivered — including electronic download (§ 67-6-231(a)).
• Tennessee separately taxes "specified digital products" — electronically transferred digital audio-visual works (movies/video), digital audio works (music), and digital books — when transferred to or accessed by a subscriber or consumer (§ 67-6-233; defined in § 67-6-102(86)).
• By contrast, in 2013, software the customer only accessed remotely (it stayed on the seller's out-of-state servers and was never downloaded) was treated as not a taxable Tennessee sale, because no tangible personal property or software was transferred into the state.

Here's how each product came out:

• Access codes for remotely accessed software / virtual goods — NOT taxable. The customer plays a game that stays on a third-party server outside Tennessee and downloads nothing. No title, possession, or control of any software passes to the customer, so there is no taxable sale or use in Tennessee. (Virtual in-game items and "pay-only" levels played on the remote server fall here too.)
• Access codes for downloadable video games, add-on map packs, and play levels — TAXABLE. A downloaded video game (or downloadable add-on) is prewritten computer software — tangible personal property — and software is taxable even when delivered by download. Buying a code rather than the software itself changes nothing: the code is simply "delayed possession" of the software the customer will download.
• Notional-dollar-value cards and points cards — NOT taxable when sold (like gift cards). The plastic card is technically tangible personal property, but the "true object" of the sale is an intangible right to spend value later, so the Department treats the card like a gift card — no tax at purchase. Tax is handled at redemption: if the customer later spends the value to download software or to download or access taxable "specified digital products," sales tax applies then, on the amount used; if the value is spent only to remotely access software without downloading, no tax applies.
• Subscription cards — it depends on the card's designated use.
  • If a card's sole purpose is to remotely access software / video games (no download), it is NOT taxable.
  • If the card is designed to (1) remotely access specified digital products, (2) download specified digital products, or (3) download computer software, it IS taxable. (A subscription to access specified digital products is itself taxable under § 67-6-233(b)(3).)
  • If a single card does both — lets the customer remotely access software and access/download specified digital products or download software — the entire purchase price is taxable as a bundled transaction (a single charge covering taxable and nontaxable items is fully taxable, § 67-6-102(79)(A)).

A timing caveat: this 2013 ruling treats software that is only remotely accessed as non-taxable. Tennessee later amended its sales-tax law to reach remotely accessed software, so the "remote access = not taxable" conclusions here (category 1, and parts of categories 3–4) may differ under current law. The download and specified-digital-product results are more durable, but always verify the current rules before relying on any of this.

What this means for you

Retailers selling games, apps, and digital content

The Department cares about what the customer actually gets: a download of software is taxable; access to software that stays on a remote server was not (in 2013); and specified digital products (digital movies, music, books) are taxable whether downloaded or just accessed. Whether you sell a code, a card, or the content directly, the label doesn't matter — follow the substance. And because the law on remotely accessed software has since changed, re-check any product you currently treat as exempt because it's "cloud" or "streaming."

Gift cards, points cards, and stored-value products

A general stored-value or points card is treated like a gift card — you don't collect tax when you sell it, because its "true object" is an intangible right. The taxable event happens on redemption, and whoever sells the actual taxable item (the downloaded software or specified digital product) collects the tax then. But a subscription card tied to specific content can be taxable at sale, depending on what it's designed to unlock — and a card that bundles taxable and nontaxable uses is fully taxable.

Accountants and tax professionals

Three buckets drive the result: prewritten computer software is TPP and taxable regardless of delivery method (§ 67-6-231(a); § 67-6-102(18), (68), (89)(A)); "specified digital products" are separately taxable, including subscription access (§ 67-6-233(a), (b)(3); § 67-6-102(86)); and remotely accessed software with no in-state transfer was non-taxable in 2013 (the line later moved). Stored-value / points cards use the "true object" test (Barnes & Noble Superstores v. Huddleston) and are taxed at redemption. Mixed-use cards are bundled and fully taxable under § 67-6-102(79)(A). The Crescent line wasn't needed because no separate tangible personal property rode along. Note the post-2013 statutory change taxing remotely accessed software.

Common questions

Q: Is a downloaded video game taxable in Tennessee?
A: Yes. A downloaded game (and downloadable add-ons like map packs or play levels) is prewritten computer software — tangible personal property — and software is taxable even when delivered electronically (§ 67-6-231(a)). Buying a download code is treated the same as buying the software.

Q: What about a game I just play online without downloading anything?
A: In this 2013 ruling, codes for remotely accessed software and virtual goods were not taxable, because nothing was downloaded or transferred into Tennessee — the game stayed on out-of-state servers. Caution: Tennessee later amended its law to tax remotely accessed software, so confirm the current treatment.

Q: Do I charge tax when I sell a gift-style points or dollar-value card?
A: No. Those cards are treated like gift cards and aren't taxed at sale, because the "true object" is an intangible right. Tax applies later, when the value is redeemed for something taxable — like a software download or a specified digital product.

Q: When is a subscription card taxable?
A: It depends on what the card is designed to do. A card only for remote access (no download) isn't taxable; a card for downloading software, or for downloading/accessing "specified digital products," is taxable; and a card that does both is fully taxable as a bundled sale.

Q: What are "specified digital products"?
A: Electronically transferred digital audio-visual works (movies/video), digital audio works (music), and digital books (§ 67-6-102(86)). Tennessee taxes their sale, license, use, or subscription access (§ 67-6-233).

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts, can be revoked or modified, and here interprets older law that has since changed for remotely accessed software. Confirm your own situation with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; Retailers' Sales Tax Act, §§ 67-6-101 to -907):

• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A) ("sale"); § 67-6-102(78)(C) (a "sale" includes furnishing the things/services taxed by the Act)
• § 67-6-231(a) (sale, lease, licensing, or use of computer software is taxable regardless of delivery method, including electronic download)
• § 67-6-233(a) (sale/license/use of "specified digital products" is taxable); § 67-6-233(b)(3) (subscriptions to access specified digital products are taxable); § 67-6-102(86) ("specified digital products" — digital audio-visual works, digital audio works, digital books)
• § 67-6-102(68) ("prewritten computer software"); § 67-6-102(18) ("computer software"); § 67-6-102(24) ("delivered electronically"); § 67-6-102(89)(A) (tangible personal property)
• § 67-6-102(90)(A) ("telecommunications service"); § 67-6-205(c)(3) (telecommunications as an enumerated taxable service)
• § 67-6-102(79)(A) ("sales price" — a single charge for bundled taxable + nontaxable items is fully taxable)

Tennessee cases cited by the ruling:

• Barnes & Noble Superstores, Inc. v. Huddleston, 1996 WL 596955 (Tenn. Ct. App. 1996) ("true object" test — the sale of a discount-club membership / stored-value right is an intangible right, not a taxable sale of property)
• Crescent Amusement Co. v. Carson, 213 S.W.2d 27 (Tenn. 1948); Commerce Union Bank v. Tidwell, 538 S.W.2d 405 (Tenn. 1976) (a tangible item that is "merely incidental" is not taxed on that basis; the Crescent line for TPP "crucial/essential/integral" to a transaction)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/13-15.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 13-15
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and
circumstances presented, and is an interpretation of the law at a specific point in time. The
law may have changed since this ruling was issued, possibly rendering it obsolete. The
presentation of this ruling in a redacted form is provided solely for informational purposes,
and is not intended as a statement of Departmental policy. Taxpayers should consult with a
tax professional before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee sales and use tax to various transactions involving online
gaming and other digital content.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.

1

FACTS
[TAXPAYER] (the “Taxpayer”) makes retail sales to Tennessee customers on its website and at
its stores located in Tennessee.
The [REDACTED] products sold by the Taxpayer include the following:
Access Codes for Remotely Accessed Software/Virtual Goods
Retail consumers purchase digital content for use in an online video game that resides on a third
party server. 1 Additionally, the customers purchase virtual goods online, either by paying to
access an online game or by paying to access additional content within an online game. At its
retail stores, the Taxpayer sells access codes [REDACTED], which allow customers to access
the described content on a third party server. The Taxpayer also plans to sell access codes via its
website; in such cases, the customer will print out or otherwise record the code for later use.
Examples of items in this category are completely web-based games such as [EXAMPLES]. Ingame content available for use in such online games includes access to “pay-only” play levels
and virtual in-game tools for use in playing an online game.
Access Codes for Downloadable Video Games as well as Associated Add-on Map Packs and
Play Levels
Retail consumers purchase prewritten software in the form of complete video games or video
game add-ons, which are delivered electronically via download directly to the customer’s
personal computer, gaming console, or mobile device. At its retail stores, the Taxpayer sells
access codes [REDACTED], which allow its customers to access and download the software
from a third party server. The Taxpayer also plans to sell access codes via its website; in such
cases, the customers will print out or otherwise record the codes for later use. Examples of items
in this category are the download of video games currently offered on disc in a retail store, such
as [EXAMPLES]. Further examples include the download of add-on map packs and play levels
that are only available online and that may be integrated into a previously purchased video game,
such as [EXAMPLES].
Notional Dollar Value Cards
Retail consumers purchase plastic cards containing notional dollar values to be used within
online networks for game play, interaction among other players on a network, access to digital
online content, or the direct download of digital content to a customer’s device. The Taxpayer
sells plastic cards containing notional dollar values that allow the customer to access content on a
third party network for a specified number of points. Cards offering points may provide network
access for a period of time, be used to access digital content on the network, or be used to
directly download digital content from the network. An example of an item in this category is the
[EXAMPLE].

1

To the Taxpayer’s knowledge, no third party servers are located in Tennessee.

2

Points Cards
Retail consumers purchase plastic cards containing point values to be used within online
networks for game play, interaction among other players on a network, access to digital online
content, and/or the direct download of digital content to a customer’s device. The Taxpayer sells
plastic cards containing points that allow the customer to access content on a third party network
for a specified number of points. Cards offering points may provide network access for a period
of time, be used to access digital content on the network, or be used to directly download digital
content from the network. An example of an item in this category is the [EXAMPLE] card.
Subscription Cards
Retail consumers purchase plastic cards containing subscription time to be used to access online
networks that allow game play, interaction among other players on a network, access to online
digital content, and/or the direct download of digital content to a customer’s device. The
Taxpayer sells plastic cards containing a subscription that allows the customer to access a third
party network or content on a third party network for a specified period of time. Cards offering
subscriptions may provide network access for a period of time, be used to access digital content
on the network, or be used to directly download digital content from the network. An example of
an item in this category is the [EXAMPLES] subscription card. Non-gaming examples include
[EXAMPLES].
RULINGS
1.

Are the Taxpayer’s retail sales of access codes for remotely accessed software and virtual
goods subject to the Tennessee sales and use tax?
Ruling: No, retail sales of access codes for remotely accessed software and virtual goods
are not subject to the Tennessee sales and use tax. No sale occurs in Tennessee because
customers remotely access games located on servers outside of Tennessee and do not
download the software or virtual goods to their computers.

2.

Are the Taxpayer’s retail sales of codes for downloadable video games as well as for addon map packs and play levels subject to the Tennessee sales and use tax?
Ruling: Yes, retail sales of codes for downloadable video games as well as for add-on
map packs and play levels are subject to the Tennessee sales and use tax. The purchase of
this type of access code is equivalent to a payment for downloaded computer software.

3.

Are the Taxpayer’s retail sales of notional dollar value cards and points cards subject to
the Tennessee sales and use tax?
Ruling: No, retail sales of notional dollar value cards and points cards, like gift cards, are
not subject to the Tennessee sales and use tax.

4.

Are the subscription cards subject to the Tennessee sales and use tax?

3

Ruling: The taxability of a subscription card depends upon the particular card’s
designated use. If a card’s designated use is only for remote access to software without
download, the card is not subject to the Tennessee sales and use tax. If a card is designed
for a customer to 1) remotely access specified digital products, 2) download specified
digital products, or 3) download computer software, it is subject to the sales and use tax.
If a card’s design gives a customer the ability to remotely access software as well as the
ability to remotely access or download specified digital products or to download
computer software, the entire purchase price of the card is subject to the sales and use tax
as a bundled transaction.
ANALYSIS
Under the Retailers’ Sales Tax Act, 2 the retail sale in Tennessee of tangible personal property
and specifically enumerated items and services is subject to the sales tax, unless an exemption
applies. “Retail sale” is defined as “any sale, lease, or rental for any purpose other than for
resale, sublease, or subrent.” 3
TENN. CODE ANN. § 67-6-102(78)(A) (Supp. 2012) defines “sale” in pertinent part to mean “any
transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise,
in any manner or by any means whatsoever of tangible personal property for a consideration.”
“Tangible personal property” includes “property that can be seen, weighed, measured, felt, or
touched, or that is in any other manner perceptible to the senses.” 4 Tangible personal property
also includes “prewritten computer software,” which is defined in TENN. CODE ANN. § 67-6102(68) in pertinent part as “computer software, including prewritten upgrades, that is not
designed and developed by the author or other creator to the specifications of a specific
purchaser.” 5 Conversely, the sale or use of intangible intellectual property generally is not
subject to Tennessee sales and use tax unless stored on tangible storage media. 6

2

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN.
CODE ANN. §§ 67-6-101 to -907 (2013)).
3

TENN. CODE ANN. § 67-6-102(76) (2013).

4

TENN. CODE ANN. § 67-6-102(89)(A).

5

TENN. CODE ANN. § 67-6-102(68) further provides that “‘[p]rewritten computer software’ or a prewritten portion
of the computer software that is modified or enhanced to any degree, where the modification or enhancement is
designed and developed to the specifications of a specific purchaser, remains prewritten computer software.” Note,
however, that “where there is a reasonable, separately stated charge or an invoice or other statement of the price
given to the purchaser for the modification or enhancement, the modification or enhancement shall not constitute
prewritten computer software.” TENN. CODE ANN. § 67-6-102(68).
6

Compare Crescent Amusement Co. v. Carson, 213 S.W.2d 27, 29 (Tenn. 1948) (rental films are taxable tangible
personal property), with Commerce Union Bank v. Tidwell, 538 S.W.2d 405, 407 (Tenn. 1976) (finding a tangible
method of data transfer “merely incidental” to the underlying transaction, and thus not subject to sales and use tax).

4

In addition to the transfer of tangible personal property, the term “sale” also includes “the
furnishing of any of the things or services” taxable under the Retailers’ Sales Tax Act. 7 One of
the “things” specifically taxable is:
[t]he retail sale, lease, licensing or use of computer software in this state, including
prewritten and custom computer software . . . regardless of whether the software is
delivered electronically, delivered by use of tangible storage media, loaded or
programmed into a computer, created on the premises of the consumer or otherwise
provided. 8
“Computer software” is “a set of coded instructions designed to cause a computer . . . to perform
a task.” 9 Computer software is “delivered electronically” if delivered “by means other than
tangible storage media.” 10
Another “thing” subject to the sales and use tax is the “retail sale, lease, licensing or use of
specified digital products transferred to or accessed by subscribers or consumers” in
Tennessee. 11 “Specified digital products” is defined as “electronically transferred digital audiovisual works, digital audio works and digital books.” 12
The sales tax also applies to retail sales of services specifically enumerated in the Retailers’
Sales Tax Act. The furnishing of “intrastate, interstate or international telecommunication
services” is one such specifically enumerated service. 13 “Telecommunications service” is defined
by TENN. CODE ANN. § 67-6-102(90)(A) as the “electronic transmission, conveyance, or routing
of voice, data, audio, video, or any other information or signals to a point, or between or among
points.”
There are two ways that non-enumerated services, however, may be included in the sales price of
a given transaction, despite not being directly subject to tax. First, a nontaxable service or item
may be subject to taxation when charges for the nontaxable service or item are included in the
sales price of a taxable good or service. Specifically, TENN. CODE ANN. § 67-6-102(79)(A)
provides that the sales price of a good or service equals the “total amount of consideration . . . for
which personal property or services are sold.” Thus, if taxable goods or services and nontaxable
goods or services are sold together for a single charge, the entire charge is generally subject to
taxation, with the bundled sales price as the measure of tax.
7

TENN. CODE ANN. § 67-6-102(78)(C).

8

TENN. CODE ANN. § 67-6-231(a) (2013) (emphasis added).

9

TENN. CODE ANN. § 67-6-102(18).

10

TENN. CODE ANN. § 67-6-102(24).

11

TENN. CODE ANN. § 67-6-233(a) (2013).

12

TENN. CODE ANN. § 67-6-102(86).

13

See TENN. CODE ANN. § 67-6-205(c)(3) (2013).

5

The second manner in which a non-enumerated service will be included in the sales price of a
transaction is where the service is intertwined with the sale of taxable tangible personal property.
The definition of “sales price” provides in pertinent part that there will be no deductions for
“labor or service” cost by the seller and also includes “[c]harges by the seller for any services
necessary to complete the sale, other than delivery and installation charges.” 14
Accordingly, the Taxpayer’s activities will be subject to the Tennessee sales tax if its charges
relate to: 1) the sale of tangible personal property, specified digital products, or computer
software in Tennessee; 2) the furnishing of a taxable service, including a telecommunications
service, in Tennessee; 3) the furnishing of an otherwise nontaxable good or service that is
bundled with a taxable good or service; and/or 4) the furnishing of a non-enumerated service that
is a “crucial,” “essential”, or “integral” element of a transaction that involves that sale of taxable
tangible personal property, or vice versa.

1. Access Codes for Remotely Accessed Software/Virtual Goods
   The sale of access codes for remotely accessed software and virtual goods is not subject to the
   Tennessee sales and use tax.
   First, no sale or transfer of tangible personal property, including prewritten computer software,
   occurs when the Taxpayer furnishes the code for remotely accessed software or virtual goods.
   The Taxpayer sells codes that its customers use to access information on a web based interface
   stored on servers located outside of Tennessee in order to play video games. The Taxpayer’s
   customer does not download anything to his or her computer. The Taxpayer does not transfer
   title, possession, or control of the interface to the customer at any time. As such, the interface is
   never delivered to, transferred to, or installed on the customer’s computers, but remains on the
   Taxpayer’s servers located outside of Tennessee.
   Second, the Taxpayer’s provision of remotely accessed software and virtual goods does not
   constitute the furnishing of a taxable service in Tennessee for purposes of the Tennessee sales
   and use tax.
   Third, because the Taxpayer does not make sales of taxable goods or services in conjunction
   with the sale of the remote access codes, the sale of such service cannot be characterized as the
   furnishing of an otherwise nontaxable service that is sold as part of the sale of a taxable good or
   service. 15 Fourth, analysis under the principles set forth in the Crescent line of cases 16 is
   unnecessary because the Taxpayer does not sell any item of tangible personal property with the
   access codes.

14

TENN. CODE ANN. § 67-6-102(79)(A).

15

See TENN. CODE ANN. § 67-6-102(79)(A).

16

See supra note 6.

6

Accordingly, the Taxpayer’s access codes for remote access software and virtual goods codes are
not subject to the Tennessee sales and use tax.

2. Access Codes for Downloadable Video Games as well as Add-on Packs and Play Levels
   The Taxpayer’s sale of access codes for downloadable video games as well as downloadable
   add-on map packs and play levels is subject to the Tennessee sales and use tax.
   As stated above, one of the “things” subject to the sales and use tax is the sale of computer
   software, including prewritten computer software, in Tennessee. 17 The video games, add-on map
   packs, and play levels that customers may download with access codes fit within the definition of
   computer software as “a set of coded instructions designed to cause a computer or automatic data
   processing equipment to perform a task”; namely, the several tasks necessary for a video game
   system to display and operate a video game. 18 It is immaterial that the customer downloads the
   software electronically. 19 The sale of this type of access code differs from the sale of an access
   code for remotely accessed software and virtual goods because the access codes at issue here
   allow the Taxpayer’s customer to download computer software directly to his or her computer.
   The fact that a customer is purchasing an access code rather than actual computer software is
   also inconsequential because the purchase of an access code is simply a delayed possession of
   the specific product that a customer must download. Thus, when a customer purchases an access
   code for downloadable digital content, that purchase is akin to the purchase of computer
   software.
   Accordingly, the sale of access codes for downloadable digital content is subject to the sales and
   use tax.
3. Notional Dollar Value Cards and Points Cards
   The Taxpayer’s notional dollar value cards and points cards are treated like gift cards and are not
   taxable at the time of their sale.
   When the Taxpayer sells notional dollar value cards and points cards, there is technically an
   exchange of title or possession of tangible personal property for consideration. 20 The physical
   medium of the cards themselves can be characterized as tangible personal property in that a
   customer can feel or touch the cards. 21 However, the true object of the sale of such a card is not
   17

TENN. CODE ANN. § 67-6-231(a) (2013)

18

See TENN. CODE ANN. § 67-6-102(18).

19

See TENN. CODE ANN. § 67-6-231(a) (sale or use of computer software in this state is taxable “regardless of
whether the software is delivered electronically”).
20

See TENN. CODE ANN. § 67-6-102(78)(A).

21

See TENN. CODE ANN. § 67-6-102(89)(A).

7

the sale of tangible personal property in the form of a card, but rather the granting to a customer
of an intangible right. 22 The card itself has no value, in and of itself, but contains notional dollar
values or point values to be exchanged for either network access to digital content or the direct
download of digital content from a network. Because the true object of the transaction is the
granting to a customer an intangible right, the transaction will be treated for sales tax purposes as
though no sale or transfer of tangible personal property, including prewritten computer software,
has occurred. 23 Thus, the Taxpayer does not need to collect sales tax on the sale of notional
dollar value cards or points cards.
A customer’s use of a notional dollar value card or points card dictates when and to what extent a
taxable sale occurs. Typically, a customer will redeem the card and apply the dollar or points
value to his or her account. The customer may then use that value to remotely access digital
content or to download digital content. If a customer uses dollar value or points to download
computer software or specified digital products or to electronically access specified digital
products, the sales tax applies to the dollar value used or dollar value equivalent of points used,
whether wholly or partially funded by a notional dollar value card or a points card, at the time of
that particular download. 24 The seller of the computer software being downloaded or the seller of
the specified digital products downloaded or accessed should charge sales tax on such sale. 25
On the other hand, if a customer uses the value from a notional dollar value or points card to
access software via the Internet without downloading it, the purchase price of that access is not
subject to the sales and use tax, and the recipient of the value from the card need not collect the
sales tax on the transaction.

4. Subscription Cards
   Whether the sales and use tax applies to the Taxpayer’s sale of subscription cards depends upon
   the intended use of a particular card, as explained below.

22

Cf. Barnes & Noble Superstores, Inc. v. Huddleston, No. 01A01-9604-CH-00149, 1996 WL 596955, at *2 (Tenn.
Ct. App. Oct. 18, 1996) (holding that the sale of discount club memberships is not subject to sales tax because the
“true object” of the transaction is to “bestow upon club members the intangible right to receive a discount on
merchandise”).

23

Similarly, there is no furnishing of a taxable service that occurs when the Taxpayer provides a customer with this
intangible right, nor is there a taxable good or service bundled in the same transaction as the sale of the intangible
right, and analysis under the principles set forth in the Crescent line of cases is unnecessary because the Taxpayer
does not sell any item of tangible personal property with the access codes. See supra note 6; TENN. CODE ANN. § 676-102(79)(A).
24

See TENN. CODE ANN. §§ 67-6-231(a), 67-6-233(a).

25

The seller of the computer software being downloaded or the seller of specified digital products downloaded or
accessed is required by law to collect Tennessee sales tax on its sales to customers in Tennessee. If the seller of the
computer software or specified digital products fails to collect Tennessee sales tax, the customer will be liable for
the Tennessee use tax on his or her download of computer software or specified digital products or access to
specified digital products.

8

The Taxpayer sells subscription cards for a variety of purposes. Some cards provide access to
online digital networks while others allow a customer to download content to his or her
computer. Still other cards have both functions and allow a customer to access content online as
well as to download content.
If the sole purpose of a subscription card is for a customer to remotely access specified digital
products or to download computer software or specified digital products, the sale of that card is
subject to the sales and use tax. With regard to subscription cards for the download of software,
the card is a physical manifestation of the right to electronically download computer software,
which is tangible personal property, and the card represents the delayed possession of the
tangible personal property that a customer will download. 26 An example of this type of
transaction would be the purchase of a subscription card for the download of [EXAMPLES],
which are considered computer software. 27 In addition, TENN. CODE ANN. § 67-6-233(b)(3)
provides that subscriptions for receiving or accessing specified digital products are subject to the
sales and use tax. An example of this type of subscription card would be one for [EXAMPLE], a
service that allows customers to [STREAM SPECIFIED DIGITAL PRODUCTS]. 28
On the other hand, if the sole purpose of a subscription card is for a customer to remotely access
video games, which are computer software, the sale of a subscription card is not subject to the
sales and use tax because there is no sale, transfer, or electronic delivery of tangible personal
property, including prewritten computer software, which occurs in Tennessee. The Taxpayer
sells these subscription cards so that its customers can access information on a web based
interface stored on servers located outside of Tennessee in order to play video games. The
customer does not download anything to his or her computer, and the Taxpayer does not transfer
title, possession, or control of the interface to the customer at any time. As such, the interface is
never delivered to, transferred to, or installed on the customer’s computer but remains on the
Taxpayer’s servers located outside of Tennessee. Information or data accessed over the Internet
is not considered the transfer of tangible personal property in Tennessee.
If a subscription card, however, allows a customer to both remotely access computer software as
well as to electronically access or download specified digital products or download computer
software to his or her computer, the Taxpayer is selling both taxable and nontaxable goods or
services together for a single charge. In that case, the entire bundled sales price of the
subscription card is subject to taxation. 29 An example of this type of card would be an
[EXAMPLE] subscription card, which allows users to access and download a variety of content,
including [EXAMPLES]. 30

26

See TENN. CODE ANN. §§ 67-6-102(18), -231(a), -233(a).

27

[REDACTED].

28

[REDACTED].

29

See TENN. CODE ANN. § 67-6-102(79)(A).

30

[REDACTED].

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Thus, if the sole purpose of a subscription card is to for a customer to remotely access video
games, then the sale of the subscription card will not be subject to Tennessee sales tax. However,
the sale of any subscription card that could potentially authorize a customer to download video
games or to access or download specified digital products would be subject to the Tennessee
sales tax.
Conclusion
In conclusion, retail sales of access codes for remotely accessed software and virtual goods are
not subject to the sales and use tax. Retail sales of access codes for downloadable video games as
well as for add-on map packs and play levels are subject to the sales and use tax. Retail sales of
notional dollar value cards and points cards are treated like gift cards and not subject to the sales
and use tax. The taxability of a subscription card depends upon the particular card’s designated
use. If a card’s designated use is only for remotely accessed software without download, the card
is not subject to the sales and use tax. If a card is designed for a customer to 1) remotely access
specified digital products, 2) download specified digital products, or 3) download computer
software, it is subject to the sales and use tax. If a card’s design gives a customer the ability to
remotely access software as well as the ability to remotely access or download specified digital
products or to download computer software, the entire purchase price of the card is subject to the
sales and use tax as a bundled transaction.

Jennifer Wilson
Assistant General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

10/14/2013

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